2009 Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) or Earned Income Credit (EIC) is designed to ease the tax burden of lower income workers and recoup some of the payroll taxes taken out of their paychecks throughout the year. The amounts have increased this year and eligibility has been expanded to include more workers. The amount of Earned Income Tax Credit (EITC) or Earned Income Credit (EIC) depends on a taxpayer's income level and number of qualified dependents. The EITC reduces your tax bill dollar for dollar and is fully refundable, meaning you may be eligible for a refund of any tax credit that exceeds your tax bill.

Earnings Levels
Individuals, heads of household, or surviving spouses with adjusted gross incomes less than $43,279 or married couples filing jointly with adjusted gross incomes less than $48,279, may qualify for the Earned Income Tax Credit (EITC). People who are married cannot claim the credit if they file separately. Married people must file a joint tax return to be eligible for any possible tax credit.

Qualifying Tests:

• You have earned income from wages, salaries, tips, net earnings from self-employment, certain long-term disability payments if you are under the minimum retirement age, or strike union benefits.
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• You did not receive more than $3,100 in investment income which includes dividends, interest, rental income, royalties, and/or stock or other asset sales.
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• You, your spouse, and/or children have valid Social Security numbers.
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• You did not exclude any income earned in a foreign country on your return.
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• You are a citizen or resident of the United States
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• You and your spouse are not being claimed as a child on someone else's return for the purpose of claiming the Earned Income Tax Credit.
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• You have at least one qualified dependent.
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• Or you do not have any qualifying dependents, but either you or your spouse were at least 25 and no more than 65 years of age at the end of 2009 and have lived in the United States for more than half the year.

Rules for a Qualifying Child

• The child is your son, daughter, stepchild, adopted child or a descendant of one of these.
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• Or the child is your brother, sister, step sibling, or a descendant of one of these.
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• Or the child is your foster child placed with you by authorized agency or court order.
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• And the child is younger than you or your spouse if you are married filing jointly.
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• And the child is not filing a joint return or is filing a joint return only to claim a refund.
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• And the child is under age 19 or is a full-time student under the age of 24 at the end of 2009. A child that is permanently and totally disabled at any time during 2009 qualifies regardless of age.
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• And the child resided with you in the United States for more than half the year.
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The Earned Income Tax Credit (EITC) varies depending on income level and the number of qualifying children you can claim.

Income Levels and Maximum Credit Amounts

• With No Qualifying Dependents - Earned income and adjusted gross income (AGI) must be less than $13,440 for single taxpayers and $18,440 for married couples filing jointly to qualify for the credit. The maximum (EITC) with no qualifying dependents is $457.

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• With One Qualifying Dependent - Earned income and adjusted gross income (AGI) must be less than $35,463 for single taxpayers and $40,463 for married couples filing jointly to qualify for the credit. The maximum (EITC) with one qualifying dependent is $3,043.
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• With Two Qualifying Dependents - Earned income and adjusted gross income (AGI) must be less than $40,295 for single taxpayers and $45,295 for married couples filing jointly to qualify for the credit. The maximum (EITC) with two qualifying dependents is $5,028.
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• With Three or More Qualifying Dependents - Earned income and adjusted gross income (AGI) must be less than $43,279 for single taxpayers and $48,279 for married couples filing jointly to qualify for the credit. The maximum (EITC) with three or more qualifying dependents is $5,657.
• The maximum Earned Income Tax Credit is calculated on a bell curve. This means that as taxpayer AGI goes up the amount of tax credit increases. At roughly half of the upper AGI limit a taxpayer is eligible for the maximum Earned Income Tax Credit (EITC). At AGI's greater than about half the upper limit the credit is gradually phased out.

  Examples - For a single Taxpayer with no qualifying dependents, the upper AGI limit is $13,440.

  • Taxpayer's AGI = $2,000, Earned Income Tax Credit = $155
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  • Taxpayer's AGI = $6,000, Earned Income Tax Credit = $457 (maximum amount)
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  • Taxpayer's AGI = $9,000, Earned Income Tax Credit = $338
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  • Taxpayer's AGI = $12,000, Earned Income Tax Credit = $108
  Calculating Earned Income Tax Credit
  • Tax forms and tables - IRS tax forms have easy to use tables to determine your Earned Income Tax Credit based on your adjusted gross income figures.
  • The IRS website has a calculator that will estimate your correct EITC if you fill in your qualified dependent and income information. You click on the "How Much Is My Credit?" link a little more than halfway down the page and you will be taken through several questions to estimate your EITC.
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  • The IRS can figure EITC for you. The illustrated form on this page tells you how to fill out your tax forms to allow the IRS to calculate your EITC for you. You should only use this option if you are sure you will be receiving a refund. If you opt to have the IRS calculate your taxes and you owe money, you may be liable for penalties and late fees on your tax bill.
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  • Use Online Resources to help calculate taxes and credits. H&R Block.com or the Turbo Tax website offer free online tax preparation. Although they may charge to file and print certain forms, you can use the free services to check your calculations and determine the correct income, deduction, credits, and/or tax and refund amounts.
  The Earned Income Tax Credit (EITC) is available to more workers and in larger amounts in 2009. Many people fail to take advantage of this credit despite the fact that the calculation is relatively easy. If you are not confident in your own comprehension of tax forms and calculations, there are a number of online resources that can allow you to take advantage of applicable tax credits and maximize your refund or minimize your tax bill.

  Sources:

  IRS EITC Home Page

  Turbo Tax EITC Basics Page